Naira Plunges by 8.25% Amid Escalating FX Crises

Samuel Mobolaji

The naira saw a sharp depreciation in the official market, dropping by 8.25 per cent to close at N1,669.15 per US dollar on Wednesday, amid an intensifying foreign exchange (FX) supply crisis.

Data from the FMDQ platform revealed that the growing disparity between FX demand and supply is fueling volatility at levels rarely observed in the official window.

Analysts warned that without a robust FX sales strategy to stabilize the naira, the currency will continue to depreciate. Despite the Central Bank of Nigeria (CBN) resuming retail Dutch Auction FX sales in August 2024, the program was abandoned in September.

Meanwhile, the CBN intervened by selling US dollars to Bureau de Change (BDC) operators, although analysts argued this had minimal impact on the parallel market.

“FX sales to BDCs have had little to no effect on the black-market rate. Why is the CBN continuing with this approach?” experts questioned in a conversation with MarketForces Africa.

FX sales to authorized dealer banks also had limited impact on the official market. Despite external reserves rising above $38 billion due to sustained FX inflows, analysts pointed out that much of these reserves are tied to government commitments, restricting the CBN’s ability to ease dollar shortages in both official and parallel markets.

In the parallel market, the naira further weakened, closing at N1,684 per US dollar, widening the gap between the official and black-market rates to N15. This disparity presents lucrative opportunities for speculators.

Last week, Nigeria’s autonomous FX rate traded between N1,530 and N1,699, closing at N1,540.78 in the spot market. The gap between the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the parallel market rates ended the week at 10 per cent.

FMDQ data showed NAFEM turnover increased by 71.7 per cent week-on-week to US$677.2 million, while inflows amounted to US$365.8 million. The CBN contributed 17.8 per cent of total inflows, with exporters accounting for the largest share at 40.3 per cent.

Meanwhile, oil prices saw slight gains, with Brent crude rising by 0.45 per cent to $73.94 per barrel and WTI increasing by 0.60 per cent to $70.26, despite downward pressure from U.S. inventory reports.